System and method for aggressively trading a strategy in an electronic trading environment

ABSTRACT

System and method for aggressively trading a spread trading strategy in an electronic environment are provided herein. According to the example embodiments, a trader may configure the automated trading tool to trade as aggressively as possible by leaning on a price without an associated quantity. This allows a trader to possibly obtain a more profitable price as well as get filled faster. Traders submit an order for a spread and the automated trading tool calculates the quote order price based on a defined level of aggressiveness, the leaned on price, and the desired spread price. Based on the level of defined aggressiveness and the gap in the market, the automated trading tool may lean on a mildly, moderately, or extremely aggressive price.

CROSS REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.13/933,262 filed Jul. 2, 2013, now U.S. Pat. No. 10,181,157, which is acontinuation of U.S. patent application Ser. No. 13/553,397 filed Jul.19, 2012, now U.S. Pat. No. 8,510,212, which is a continuation of U.S.patent application Ser. No. 12/128,382 filed May 28, 2008, now U.S. Pat.No. 8,249,977, entitled “System and Method for Aggressively Trading aStrategy in an Electronic Trading Environment,” the contents of each ofwhich are fully incorporated herein by reference for all purposes.

FIELD OF THE INVENTION

The present invention is directed to electronic trading. Morespecifically, the present invention is directed towards aggressivelytrading a strategy in an electronic trading environment.

BACKGROUND

Electronic trading generally refers to a trading system thatelectronically matches orders by an electronic trading platform. Currentexamples of electronic trading platforms include the Chicago MercantileExchange (“CME”) Globex® trading system, the Chicago Board of Trade(“CBOT”) e-cbot, and Eurex, just to name a few. A trading system thatmatches orders electronically is also referred to herein as an“electronic exchange.” Exchanges like the CME Group, which includes theCME and CBOT, currently offer trading via open outcry in addition toelectronic trading.

With respect to electronic exchanges, traders connect to an electronictrading platform by way of a communication link through their clientdevices. Once connected, traders select which tradeable objects theywish to trade. As used herein, the term “tradeable object” refers toanything that can be traded with a quantity and/or a price. It includes,but is not limited to, traded events, goods and/or financial productssuch as stocks, options, bonds, futures, currency, and warrants, as wellas funds, derivatives and collections of the foregoing, and all types ofcommodities, such as grains, energy, and metals. The tradeable objectmay be “real,” such as products that are listed by an exchange, or“synthetic,” such as a combination of real products that is created bythe trader. A tradeable object could actually be a combination of othertradeable objects, such as a class of tradeable objects.

Sometimes, on their machines, traders use automated or semi-automatedtrading tools, collectively hereinafter referred to as “automated tools”that automatically or semi-automatically send orders to the exchange.Such automated tools are usually provided, among other things, tofacilitate fast and accurate order entry. For instance, an automatedtool might quickly calculate one or more order parameters, such as anorder price or order quantity, based on market conditions or some otherreference condition, and then automatically send an order with theseparameters to an exchange for matching.

In addition to trading individual tradeable objects, many traders oftenimplement trading strategies that involve simultaneous trading of two ormore tradeable objects. One such trading strategy is commonly referredto as spread trading. In general, spread trading is the buying and/orselling of one, two, or more tradeable objects, one purpose of which isto capitalize on changes or movements in the relationships between thetradeable objects. The tradeable objects that are used to complete aspread are referred to as the outright markets or legs of the spread. Aspread trade could involve buying tradeable objects, buying and sellingtradeable objects, selling tradeable objects or some combinationthereof.

A commercially available trading tool that facilitates the automatictrading of spreads is Autospreader™ from Trading TechnologiesInternational, Inc. of Chicago, Ill. Once the legs of the spread arechosen and the relationship between them are defined, a trader can inputa desired spread price and quantity, and the Autospreader™ willautomatically work orders in the legs to achieve the desired spread (orattempt to achieve the spread). The Autospreader™ is currently an add-ontool available with X_TRADER® Pro™, which is a trading application alsoavailable from Trading Technologies International, Inc. U.S. patentapplication Ser. No. 10/137,979, entitled, “System and Method forPerforming Automatic Spread Trading,” filed on May 3, 2002, the contentsof which are fully incorporated by reference herein, describes anautomated spread trading tool.

Using an automated trading tool such as Autospreader™, a trader caninput a price to buy or sell the spread, and the automated trading toolwill automatically work orders in the legs to achieve, or attempt toachieve the trader's desired price for the spread. For instance, atrader might define buying a spread as buying in leg A and selling inleg B. According to that definition, if the trader inputs a desiredprice to buy the spread, the automated trading tool will place a buyorder in leg A, based on the best price that a sell order could befilled at in leg B. The best price in leg B is also known as the pricethat the buy order in leg A is based on, or the “leaned on price”. Theleaned on price is located at the price level that has sufficientquantity available to satisfy the quantity of the order placed in leg A.If a price level does not have sufficient quantity, then the automatedtool leans on the next price level that does such that the risk ofgetting legged up is reduced. The instant that the order in leg A isfilled, the automated trading tool submits an offsetting hedge order toleg B at the leaned on price. However, if at the time that the order inleg A is filled there is insufficient quantity available at the leanedon price, then the trader may become “legged up” and there will be anincreased likelihood that the trader's spread will fail.

As the market in leg B moves, the order in leg A may be re-priced toachieve the desired spread price. Re-pricing an order typically involvescanceling the existing order and replacing it with a new order atanother price. While effective for achieving a desired spread price,re-pricing can result in the new order being placed at the end of anorder queue corresponding to the order's new price at the electronicexchange. If, the new order loses queue position, then it may decreasethe likelihood that the order will get filled, or increase thelikelihood that the trader will get “legged up.”

SUMMARY

The embodiments described herein provide a system and method foraggressively trading a spread trading strategy in an electronic tradingenvironment. To illustrate the present invention and aspects thereof,the following description, including the figures and detaileddescription, provides examples that can be used or readily modified byone of ordinary skill to generate a system or method that benefits fromthe teachings described and claimed herein.

In many instances, spotting an opportunity in the market andcapitalizing on the opportunity before a competing trader or before themarket moves, can separate the traders who are successful from the oneswho are not. An important component in capitalizing on opportunitiesinvolves the trader quickly acting on that market information to enteran order as quickly as possible. One such way to increase the speed ofan order submission is to use automated trading tools, such asAutospreader™. Autospreader™ automatically submits an offsetting orderonce an order in the first leg is filled, therefore eliminating thechance of a trader delay when submitting the order.

Additionally, capitalizing on a trading opportunity may require thetrader to trade more aggressively or riskier than normal. However, whenusing the conventional method to trade spread trading strategies, atrader is limited in the degree of risk to apply to each order, as theconventional method attempts to eliminate the risk of getting legged up.While reducing the chance of getting legged up is extremely useful andimportant, there may be missed opportunities for profit due tore-pricing an order or only leaning on price levels that have sufficientquantity available.

According to an example embodiment, the automated trading tool leans ona price without an associated quantity. One or more prices without anassociated quantity are also known as a “gap” in the market and maypresent added opportunities to make a profit for the trader. By leaningon a price within a gap, a trader may be able to get a more profitableprice for the trading strategy.

According to the present embodiments, this method allows a trader todetermine a level of aggressiveness to trade a spread trading strategywhen there is a gap in the market. A trader may configure the automatedtrading tool to trade mildly, moderately, or extremely aggressive. If,for example, a trader is mildly aggressive, the automated trading toolwill quote a limit order in leg A by leaning on one price level abovethe best bid or one price level below the best ask. If the trader isbuying the spread then the automated trading tool will lean on the pricelevel above the best bid. Similarly, if the trader is selling the spreadthen the trading tool will lean on the price level below the best ask.This is the price where the trader believes an offsetting limit orderwill get filled but for a more profitable price. While there may notcurrently be any quantity available at the price level above the bestbid or below the best ask, other traders may be willing to more quicklybuy at a higher price or sell at the lower price instead of waiting forthe market to come to them. Additionally, the offsetting order placed atthe leaned on price may get filled faster as the order will be first inthe order queue for that price level within the gap.

According to another example embodiment, if a trader is moderatelyaggressive and there is more than one price level within gap in themarket, the automated trading tool will quote the limit order in leg Aby leaning on two price levels above the best bid or below the best ask.If the trader is buying the spread then the automated trading tool willlean on two price levels above the best bid. Similarly, if the trader isselling the spread then the trading tool will lean on two price levelsbelow the best ask. This is a price level that will increase thepossible profit for the trader even further than if the trader wasmildly aggressive, but has a greater risk of getting legged up. Aspreviously stated, while there may not currently be any quantityavailable at that price level, other traders may be willing to morequickly buy at a higher price or sell at the lower price instead ofwaiting for the market to move.

According to yet another example embodiment, if a trader is extremelyaggressive and there is more than one price level within gap in themarket, the automated trading tool will quote the limit order in leg Aby leaning on one price level below the best ask or one price levelabove the best bid. If the trader is buying the spread then theautomated trading tool will lean on the price level below the best ask.Similarly, if the trader is selling the spread then the trading toolwill lean on the price level above the best ask. This price levelprovides the greatest risk and reward for the trader as there is ahigher chance of the spread getting legged up but also the highestpossible profit for the trader if the offsetting limit order is filled.

Other examples are provided herein. Modifications may also be made tothe system and methods without departing from the spirit or scope of theinvention. Additional features and advantages of the embodiments will beset forth in the description that follows. The features and advantagesof the example embodiment may be realized and obtained through theembodiments particularly pointed out in the appended claims. These andother features will become more fully apparent from the followingdescription, figures, and appended claims, or may be learned by thepractice of the example embodiments as set forth hereinafter.

BRIEF DESCRIPTION OF THE FIGURES

Example embodiments are described herein with reference to the followingdrawings, in which:

FIG. 1 illustrates an example electronic trading system for trading,wherein the trading system includes a trading station where a trader cansubmit bids and offers for a tradeable object being traded at anelectronic exchange;

FIG. 2 illustrates another example electronic trading system forelectronic trading, wherein this trading system includes a tradingstation where a trader can submit bids and offers for a tradeable objectbeing traded at more than one electronic exchange;

FIG. 3 illustrates an example trading station of either FIG. 1 or FIG. 2where a trader can submit bids and offers for a tradeable object beingtraded at one or more exchanges;

FIG. 4 is a block diagram illustrating an example relationship between asynthetically created spread and its underlying “N” number of legs;

FIG. 5 is a flow chart illustrating an example method for aggressivelytrading a spread trading strategy in an electronic trading environment;and

FIG. 6 is a block diagram illustrating an example method of aggressivelyquoting an order in leg A by leaning on a price within a gap in themarket in leg B.

DETAILED DESCRIPTION

The present invention is related to aggressively trading a spreadtrading strategy in an electronic trading environment. To illustrateaspects of the present invention, a system and method are illustrated inexample form using the drawings referred to herein. One of ordinaryskill in the art will recognize, however, that such examples may bequickly and readily adaptable using the teachings described herein.Aspects of the present invention are protected by the accompanyingclaims. Limitations from the patent specification should not beimproperly incorporated into the claims unless explicitly stated orotherwise inherently known.

I. A First Example Trading System

FIG. 1 illustrates an example electronic trading system in which theexample embodiments may be employed. In this example, the trading systemcomprises a client device 102 that accesses an electronic exchange 104through a gateway 106. Router 108 is used to route messages between thegateway 106 and the electronic exchange 104. The electronic exchange 104includes a computer process (e.g., the central computer) that matchesbuy and sell orders sent from the client device 102 with orders fromother client devices (not shown). The electronic exchange 104 may listone or more tradeable objects for trading. While not shown in FIG. 1 forthe sake of clarity, the trading system may include other devices thatare specific to the client site like middleware and security measureslike firewalls, hubs, security managers, and so on, as understood by aperson skilled in the art.

Regardless of the types of order execution algorithms used, theelectronic exchange 104 provides market information to the subscribingclient device 102. Market information may include data that representsjust the inside market. The inside market is the lowest sell price (bestask) and the highest buy price (best bid) at a particular point in time.Market information may also include market depth. Market depth refers toquantities available at the inside market and can also refer toquantities available at other prices away from the inside market. Thequantity available at a given price level is usually, although notnecessarily, provided by the host exchange in aggregate sums. In otherwords, an exchange usually provides the total buy quantity and the totalsell quantity available in the market at a particular price level in itsdata feed. The extent of the market depth available to a trader usuallydepends on the exchange. For instance, some exchanges provide marketdepth for all (or most) price levels, while some provide only quantitiesassociated with the inside market, and others may provide no marketdepth at all. Additionally, the exchange 104 can offer other types ofmarket information such as the last traded price (LTP), the last tradedquantity (LTQ), and order fill information.

The computer employed as the client device 102 generally can range froma handheld device, laptop, or personal computer to a larger computersuch as a workstation with multiple multiprocessors. Generally, theclient device 102 includes a monitor (or any other output device) and aninput device, such as a keyboard, a trackball, and/or a two orthree-button mouse to support click based trading, if so desired. Oneskilled in the art of computer systems will understand that the presentexample embodiments are not limited to any particular class or model ofcomputer employed for the client device 102 and will be able to selectan appropriate system.

The computer employed as the gateway 106 generally can range from apersonal computer to a larger or faster computer. Generally, the gateway106 may additionally include a monitor (or any other output device),input device, and access to a database, if so desired. One skilled inthe art of computer systems will also understand that the presentexample embodiments are not limited to any particular class or model ofcomputer(s) employed for the gateway 106 and will be able to select anappropriate system.

It should be noted that a computer system that may be employed here as aclient device or a gateway generally includes a central processing unit,a memory (a primary and/or secondary memory unit), an input interfacefor receiving data from a communications network, an input interface forreceiving input signals from one or more input devices (for example, akeyboard, mouse, etc.), and an output interface for communications withan output device (for example, a monitor). A system bus or an equivalentsystem may provide communications between these various elements.

In general, it should be understood that the devices described hereincould include hardware objects developed using integrated circuitdevelopment technologies, or yet via some other methods, or thecombination of hardware and software objects that could be ordered,parameterized, and connected in a software environment to implementdifferent functions described herein. Also, the hardware objects couldcommunicate using electrical signals, with states of the signalsrepresenting different data.

It should also be noted that the client device 102 generally executesapplication programs resident at the client device 102 under the controlof the operating system of the client device 102. Also, the gateway 106executes application programs resident at the gateway 106 under thecontrol of the operating system of the gateway 106. In other embodimentsand as understood by a person skilled in the art, the function of theapplication programs at the client device 102 may be performed by thegateway 106, and likewise, the function of the application programs atthe gateway 106 may be performed by the client device 102.

The actual electronic trading system configurations are numerous, and aperson skilled in the art of electronic trading systems would be able toconstruct a suitable network configuration. For the purposes ofillustration, some example configurations are provided to illustratewhere the elements may be physically located and how they might beconnected to form an electronic trading system. These illustrations aremeant to be helpful to the reader, and they are not meant to belimiting. According to one example illustration, the gateway device maybe located at the client site along with the trading station, which isusually remote from the matching process at the electronic exchange.According to this instance, the trading station, the gateway, and therouter may communicate over a local area network, and the router maycommunicate with the matching process at the electronic exchange over aT1, T3, ISDN, or some other high speed connection.

In another example illustration, the client site may be located on theactual grounds of the electronic exchange (for example, in the buildingof the exchange). According to this instance, the trading station, thegateway, and the router may still communicate over a local area network,but the router may communicate with the matching process at theelectronic exchange through another connection means besides a T1, T3,or ISDN. In yet another example illustration, the gateway may be housedat, or near, its corresponding electronic exchange. According to thisinstance, the client device may communicate with the gateway over a widearea network or through the use of a T1, T3, ISDN, or some other highspeed connection.

Further, the gateway may be located remote from the client device andremote from the electronic exchange, which might be particularly usefulin systems that include interconnection of multiple trading networks.Thus, one trading network might have gateway access to an electronicexchange. Then, other trading networks may communicate with the tradingnetwork that has gateway access through a T1, T3, ISDN, or some otherhigh speed connection.

II. A Second Example Trading System

FIG. 2 illustrates another example electronic trading system that usessimilar computer elements as shown in FIG. 1, in which a trader mayaccess and trade at multiple electronic exchanges. The system comprisesa client device 202 that can access multiple electronic exchanges 204and 208. In this particular embodiment, electronic exchange 204 isaccessed through gateway 206 and electronic exchange 208 is accessedthrough another gateway 210. Alternatively, a single gateway may beprogrammed to handle more than one electronic exchange. Router 212 isused to route messages between the gateways 206 and 210 and theelectronic exchanges 204 and 208. While not shown in the figure, thesystem may include other devices that are specific to the client sitelike middleware and security measures like firewalls, hubs, securitymanagers, and so on, as understood by a person skilled in the art.Additional electronic exchanges may be added to the system so that thetrader can trade at any number of exchanges, if so desired.

The trading system presented in FIG. 2 provides the trader with theopportunity to trade tradeable objects listed at different electronicexchanges. To some traders, there can be many advantages with amulti-exchange environment. For example, a trader could view marketinformation from each tradeable object through one common visualdisplay. As such, price and quantity information from the two separateexchanges may be presented together so that the trader can view bothmarkets simultaneously in the same window. In another example, a tradercan spread trade different tradeable objects listed at the differentelectronic exchanges.

As indicated earlier, one skilled in the art of electronic tradingsystems will understand that the present embodiments are not limited tothe particular configurations illustrated and described with respect toFIG. 1 and FIG. 2, and will be able to design a particular system basedon the specific requirements (for example, by adding additionalexchanges, gateways, client devices, routers, or other computers servingvarious functions like message handling and security). Additionally,several networks, like either of the networks shown in FIG. 1 or FIG. 2,may be linked together to communicatively access one or more electronicexchanges.

III. Client Device

Client devices 102 and 202 can be computers, such as a workstation,desktop, laptop, handheld device, and so forth, that allow a trader totrade one or more tradeable objects that are offered at exchange(s). Aclient device may include at least a processor and memory. Preferably,the processor has enough processing power to handle and process varioustypes of market information. The more market information is received andprocessed, the more processing power is preferred. However, any presentday processor has enough capability to perform at least the most basicpart of the present invention.

Memory may include a computer readable medium. The term computerreadable medium, as used herein, refers to any medium that participatesin providing instructions to a processor unit for execution. Such amedium may take many forms, including but not limited to, non-volatilemedia, and transmission media. Non-volatile media include, for example,optical or magnetic disks, such as storage devices. Volatile mediainclude, for example, dynamic memory, such as main memory or randomaccess memory (“RAM”). Common forms of computer readable media include,for example, floppy disks, flexible disks, hard disks, magnetic tape,punch cards, CD-ROM, a RAM, a PROM, an EPROM, a FLASH-EPROM, and anyother memory chip or cartridge, or any other medium from which acomputer can read.

When a client device receives market information or other data, such asnews, or charting data, and order related information from an exchange,the received information may be displayed to the trader(s) on the visualoutput device or display device. However, it should be understood thatthe information could be provided to a trader using other means such assound. The output device can be any display device. For example, thedisplay could be a CRT-based video display, an LCD-based or a gasplasma-based flat-panel display, a display that shows three-dimensionalimages, or some other type of display.

Upon viewing the market information or a portion thereof, a trader maywish to send orders to an exchange, cancel orders, change orders, queryan exchange, and so on. To do so, the trader may input various commandsor signals into a client device such as by typing into a keyboard,inputting commands through a mouse, or inputting commands or signalsthrough some other input device. For instance, a trader may click amouse button to initiate an order to buy a particular quantity of thetradeable object at a particular price. Then, a client device preferablygenerates transaction information. There are many different types ofmessages and/or order types that can be submitted, all of which may beconsidered various types of transaction information. Once generated,transaction information is sent from a client device to one or more hostexchanges over communication links.

In one example embodiment, a client device uses software to createspecialized interactive trading screens on terminals associated withthem. Trading screens preferably enable traders to, among other things,enter and execute orders, obtain market quotes, and monitor positions.The range and quality of features available to the trader on his or hertrading screen may vary according to the specific software applicationbeing run. In addition to or in place of the interactive tradingscreens, a client device could run automated types of tradingapplications.

IV. An Example Trading Station

FIG. 3 illustrates an example trading station 300 which is similar tothe type of trading stations 102 and 202 shown in FIGS. 1 and 2. Tradingstation 300 can be any particular type of computing device, examples ofwhich were enumerated above. According to one example embodiment,trading station 300 has a trading application 302 stored in memory thatwhen executed arranges and displays market information in manyparticular ways, usually depending on how the trader prefers to view theinformation. Trading application 302 may also implement an automatedtrading tool such as the automated spread trading tool thatautomatically sends orders into underlying legs to achieve a spread.

Preferably, trading application 302 has access to market informationfrom one or more exchanges 310 through API 304 (or applicationprogramming interface), and trading application 302 can also forwardtransaction information to exchange 310 via API 304. Alternatively, API304 could be distributed so that a portion of the API rests on thetrading station 300 and a gateway, or at the exchange 310. Additionally,trading application 302 may receive signals from input device 312 viainput device interface 306 and can be given the ability to send signalsto display device 314 via display device interface 308.

Alternatively, the example embodiments described herein may be aseparate program from trading application 302, but still stored inmemory and executed on the trading station 300. In another alternativeembodiment, the preferred embodiments may be a program stored in memoryand executed on a device other than trading station 300. Example devicesmay include a gateway or some other well known intermediary device.

V. Automatic Spread Trading Overview

According to one embodiment of an automated spread trading tool, atrader can select two or more individual tradeable objects, to create a“synthetic spread” that is sometimes referred hereinafterinterchangeably as a “spread”. Each tradeable object may be referred toas a “leg” of the spread. The automatic spread trading tool preferablygenerates spread data based on information in the legs and based onspread setting parameters, which may be configurable by a trader. Thespread data may be communicated to a graphical user interface where itis displayed and where data corresponding to the legs of the spread maybe displayed as well. At the client device, the trader can enter ordersin the spread window, and the automated spread trading tool willautomatically work orders in the corresponding legs to achieve, orattempt to achieve (because the fill of the order is not alwaysguaranteed) a desired spread.

FIG. 4 is a block diagram illustrating the relationship between asynthetically created spread 400, its underlying N legs 402, and aspread order 404 that has been entered. When a trader enters an order tobuy or to sell the spread (e.g., represented as spread order 404) in asynthetic market, the automated spread trading tool automatically placesorders in the appropriate legs to achieve or attempt to achieve thedesired spread 404. For example, to achieve spread order 404, theautomated spread trading tool may automatically enter orders 406, 408,410 into the underlying legs 402. The automated spread trading tool may,among other things, calculate the quantities and prices for the orders406, 408, 410 based on market conditions in the other legs and one ormore parameters. It should be understood that an order to buy or sellthe spread is simply an order price and an order quantity associatedwith the spread.

Using FIG. 4, let's assume that a spread order 404 has been entered intothe market. When a trader enters an order to buy or to sell the spread(e.g., spread order 404) in a synthetic market, the automated spreadtrading tool automatically places orders in the appropriate legs toachieve or attempt to achieve the desired spread 404. For example, toachieve synthetic spread order 404, the automated spread trading toolmay automatically enter orders 406, 408, . . . 410 into the underlyinglegs 402 (e.g., “Leg 1,” “Leg 2,” . . . “Leg N”). The automated spreadtrading tool may, among other things, calculate the quantities andprices for the orders 406, 408, 410 based on market conditions in theother legs and one or more parameters.

For example, according to the conventional method to trade a spread,consider if “Leg 1 Order” 406 is a buy order, then the price of order406 may be based on the leaned on price of “Leg 2” and on the leaned onprice of each leg through “Leg N.” In other words, the price of order406 leans on the quantity at the corresponding price level in “Leg 2”though “Leg N.” Of course, depending on the trading strategy, the priceof order 406 might be based only on some of the legs and not on all Nlegs. Alternatively, other trading strategies may be used to determinethe price and quantities of the orders. Of course, the order parametersof an order in one leg can lean on other types of market conditions inthe other legs such as the last traded price (LTP), the last tradedquantity (LTQ), a theoretical value, multiple quantities such asquantities closer to the inside market, or some other reference point.

VI. Aggressively Trading a Spread Trading Strategy

FIG. 5 is a flow chart 500 illustrating an example method foraggressively trading a spread trading strategy in an electronic tradingenvironment. It should be understood that flow chart 500 only shows thefunctionality and operation of a possible implementation of the examplemethod. In this regard, each block may represent a module, a segment, ora portion of the program code, which includes one or more executableinstructions for implementing specific logical functions or steps in theprocess. Alternative implementations are included within the scope ofthe example embodiments of the present invention in which functions maybe executed out of order from that shown or discussed, includingsubstantially concurrent or in reverse order, depending on thefunctionality involved, as would be understood by those reasonablyskilled in the art of the present invention.

At step 502, the trader defines a spread using the automated tradingtool. The spread may consist of N legs, however, in the examplesdescribed below, the spread has been defined as a 2 legged spread.

At step 504, the trader defines the level of aggressiveness to associatewith the spread. The trader may choose a different level ofaggressiveness, based on for example, knowledge of the market, volumebeing traded, market fluctuations, or the trader's own personal choice.When a gap in the market exists, the trader may choose to have theautomated trading tool mildly, moderately, or extremely aggressivelylean on a price in leg B to quote the order in leg A.

According to the example embodiments, if a trader chooses to trademildly aggressive, then the automated trading tool will quote the orderin leg A by leaning on one price level above the best bid or one pricelevel below the best ask. As previously described, if the trader isbuying the spread then the automated trading tool will lean on the pricelevel above the best bid. Similarly, if the trader is selling the spreadthen the trading tool will lean on the price level below the best ask.This is the price where the offsetting order may get filled just asquickly as if it were placed at the current best bid, but for a betterprice. While there may not currently be any quantity available at theprice level above the best bid or below the best ask, other traders maybe willing to more quickly buy at a higher price or sell at the lowerprice instead of waiting for the market to move. It should be understoodthat both the quote order placed in leg A and the offsetting order sentto leg B are both limit orders.

According to another example embodiment, the trader may choose to trademoderately aggressive if there is more than one price level within thegap in the market. In this instance, the automated trading tool willquote the order in leg A by leaning on two price levels above the bestbid or below the best ask. As previously discussed, if the trader isbuying the spread then the automated trading tool will lean on two pricelevels above the best bid. Similarly, if the trader is selling thespread then the trading tool will lean on two price levels below thebest ask. This is a price level that will further increase the possibleprofit for the trader, but has a greater risk of getting legged up.

According to yet another example embodiment, the trader may choose totrade extremely aggressive if there is more than one price level withinthe gap in the market. In this instance, the automated trading tool willquote the order in leg A by leaning on one price level below the bestask or one price level above the best bid. As previously described, ifthe trader is buying the spread then the automated trading tool willlean on the price level below the best ask. Similarly, if the trader isselling the spread then the trading tool will lean on the price levelabove the best ask. This price level provides the greatest risk andreward for the trader as there is a higher chance of the spread gettinglegged up but also the highest possible profit for the trader if theorder is filled.

Additionally, the trader may modify the level of aggressiveness on thefly during a trading session. This is useful during circumstances ofincreased trading volume due to, for example, industry news beingreleased such as unemployment data. Similarly, the trader may desire tomodify the level of aggressiveness based on that day's history ofprofits/losses. If the trader has had a successful day of trading thusfar, he may increase the level of aggressiveness. Likewise, if a traderhas had an unsuccessful day of trading, he may decrease the level ofaggressiveness or turn off the aggressive spreading option all together.

In an additional embodiment, the automated trading tool may dynamicallydetermine the level of aggressiveness for the trader. The automatedtrading tool may track the trader's trading history and dynamicallyincrease or decrease the level of aggressiveness based on for example,market conditions, profit/loss, or the amount of volume being traded.

At step 506, the automated trading tool determines if there is a gap inthe market. As previously defined, a gap in the market is one or moreprice levels without an associated quantity. According to the exampleembodiments, by leaning on a price in a gap, a trader may be able to geta better price for the trading strategy as well as possibly get filledfaster.

At step 508, the automated trading tool has determined that there is agap in the market. Based on how many price levels are within the gap andthe defined level of aggressiveness, the automated trading tool willlean on a price within the gap. According to the example embodiments, ifthere is only one price level within the gap, then regardless of thelevel of aggressiveness, the automated trading tool will lean on thatprice level. In the instance that there is more than one price level inthe gap, then the automated trading tool will use the level of definedaggressiveness to determine which price level to lean on before quotingthe order in leg A. Additionally, if the trader has not defined a levelof aggressiveness, then the trading tool can be programmed to lean onthe best bid or best ask, or some other designated price(s).

At step 510 the automated trading tool has determined that there is nota gap in the market, in other words, the market is tight and the bestbid and best ask are not separated by another price level. In thiscircumstance, the automated trading tool will quote the order in leg Abased on the best bid or best ask in leg B. If a gap in the marketoccurs, then the automated trading tool may modify the leaned on pricein leg B and may lean on a price that is more aggressive.

At step 512 the automated trading tool evaluates the market at a latertime and determines if the market has fluctuated and if an existingprice gap has increased or decreased.

At step 514 the automated trading tool modifies the leaned on price inleg B that the quote order in leg A is based on. If the gap in themarket has increased then, the leaned on price may be modified to bemore aggressive. Similarly, if the gap in the market has decreased, thenthe leaned on price may be modified to be less aggressive.

At step 516 the automated trading tool re-prices the quote order in legA based on the adjusted leaned on price in leg B. The quote order in legA is re-priced whenever the leaned on price in leg B changes, such aswhen the gap in the market increases or decreases.

At step 518 the automated trading tool has not detected a fluctuation inthe market and will maintain the existing leaned on price in leg B.

It should be understood that any time the leaned on price changes in legB, the quote order in leg A will be re-priced, unless other automatedtrading tools, such as slop are being applied. Accordingly, slop assiststhe automated trading tool by regulating the automatic re-pricing oforders in legs to achieve a desired spread by allowing a trader to inputone ore more range of inside and outside parameters to variably controlorder entry. Slop is described in U.S. patent application Ser. No.10/403,333, filed on Mar. 31, 2003 and entitled, “System and Method forVariably Regulating Automatic Order Entry in an Electronic TradingEnvironment,” the contents of which are incorporated herein byreference.

VII. Aggressive Spread Trading Example

FIG. 6 is a block diagram illustrating an example method of aggressivelyquoting an order in leg A by leaning on a price within the gap in leg B.Specifically, FIG. 6 includes the trading screens 600 associated withlegs A and B of the defined spread. The trading screens display aworking quantity column 602, bid quantity column 604, ask quantitycolumn 606, price column 608, and the working quote order 610, 612, and614. The working quantity column 602 displays desired orders to buy orsell quantity of that tradeable object. The bid quantity column 604displays buy order quantities available in relation to certain pricelevels in price column 608. The ask quantity column 606 displays offerorder quantities available in relation to certain price levels in pricecolumn 608. The price column 608 displays the price levels associatedwith the legs involved in the spread trading strategy. The working quoteorder 610, 612, and 614 display an order that was entered by theautomated trading tool based on the trader's desired spread price andthe defined level of aggressiveness. As shown in FIG. 6, quote order 612coincides with a mild level of aggressiveness and the leaned on price616; quote order 614 coincides with the moderate level of aggressivenessand the leaned on price 618; and quote order 614 coincides with theextreme level of aggressiveness and the leaned on price 620.

In the following examples, the trader is buying the configured spread,such that the automated tool will place a buy order in leg A and anoffsetting sell order in leg B. Alternatively, when the trader isselling the spread the automated trading tool would place a sell orderin leg A and the offsetting buy order in leg B. Additionally, a tradercould configure the automated tool to place buy orders in both legs orto place sell orders in both legs.

According to the example embodiments as shown in FIG. 6, the trader hasdefined a desired level of aggressiveness. To submit a quote order toleg A, the automated trading tool determines which price to lean on inleg B by using the desired spread price of “0” and the trader's definedlevel of aggressiveness. It should be understood that the exampleembodiments are not limited to spread price of “0” and that any spreadprice may be chosen as the desired spread price by a trader.

Using the conventional method, the leaned on price would be the best bidin leg B, price level “98”, resulting in the quote order being placed ata price level of “98” in leg A. However, according to the exampleembodiments, based on the defined level of aggressiveness, the automatedtrading tool leans on a more aggressive price within the gap in themarket. Specifically, if the defined level of aggressiveness is mild,then the automated trading tool leans on price level “99” in leg B,shown at 616, and a quote order is placed at a price level of “99” inleg A, shown at 610. When the quote order 610 is filled, then anoffsetting order will be sent to the electronic exchange for a price of“99.” If the offsetting order is filled at the leaned on price level of“99” instead of the price of “98” the trader will make more profit orpossibly get filled faster.

According to the example embodiments as shown in FIG. 6, if the traderhas defined the desired level of aggressiveness as moderate, then theautomated trading tool leans on the price level of “100” in leg B, shownat 618, and a quote order is placed at a price level of “100” in leg A,shown at 612. When the quote order 612 is filled, then an offsettingorder will be sent to the electronic exchange for a price of “100.” Ifthe offsetting order is filled at the leaned on price level of “100” ininstead of “98” or “99,” then the trader will make even more profit.

In an additional example embodiment, if the trader has defined the levelof aggressiveness as extreme, then the automated trading tool leans onthe most aggressive price level available, which is “101” in leg B,shown at 620. When the quote order in leg A, shown at 614, is filled,then the offsetting order will be sent to the price level “101” in legB, shown at 620. Additionally, if the offsetting order is filled at theleaned on price level of “101” instead of at “98, 99, or 100,” then thetrader will make even more profit that if the level of aggressivenesswas set to mild or moderate.

Alternatively, it is possible that the best bid and best ask mayfluctuate as the market fluctuates. If the gap in the market decreases,the automated trading tool may modify the leaned on price to coincidewith the gap in the market. As previously discussed, it should beunderstood that if the leaned on price in leg B is modified, then thequote order price in leg A will also be modified. For example, based onFIG. 6, if the level of aggressiveness was defined as extreme, thetrading tool would lean on the price level of “101,” shown at 620.However, if the market fluctuated and the gap decreased by one pricelevel, such that the price level “100” was the most aggressive priceavailable, then the automated trading tool would modify the leaned onprice to “100.” The quote order in leg A, shown at 616, would bere-priced to a price level of “100” to coincide with the modified leanedon price in leg B.

In an additional embodiment, if the trader defined the level ofaggressiveness as moderate and there was, for example, an increase intrading volume, the automated trading tool may dynamically adjust thelevel of aggressiveness to “extreme.” Using FIG. 6, if the initial levelof aggressiveness was set to moderate, the leaned on price would be“100,” shown at 618. With an increase in volume, the automated tradingtool may dynamically modify the leaned on the price to a price level of“101” instead of “100.” The quote order in leg A, shown at 612, would bere-priced to a price level of “101” as well to coincide with themodified leaned on price in leg B. Additionally, if a trader recognizedan increase in trading volume, the trader may manually adjust the levelof aggressiveness on the fly.

The above description of the example embodiments, alternativeembodiments, and specific examples, are given by way of illustration andshould not be viewed as limiting. Further, many changes andmodifications within the scope of the present embodiments may be madewithout departing from the spirit thereof, and the present inventionincludes such changes and modifications.

It will be apparent to those of ordinary skill in the art that methodsinvolved in the system and method for aggressively trading a spreadtrading strategy may be embodied in a computer program product thatincludes one or more computer readable media. For example, a computerreadable medium can include a readable memory device, such as a harddrive device, CD-ROM, a DVD-ROM, or a computer diskette, having computerreadable program code segments stored thereon. The computer readablemedium can also include a communications or transmission medium, suchas, a bus or a communication link, either optical, wired or wirelesshaving program code segments carried thereon as digital or analog datasignals.

The claims should not be read as limited to the described order orelements unless stated to that effect. Therefore, all embodiments thatcome within the scope and spirit of the following claims and equivalentsthereto are claimed as the invention.

The invention claimed is:
 1. A computing device comprising: a market information receiver configured to receive market information from one or more electronic exchanges, where the market information identifies a first inside market for a first tradeable object and a second inside market for a second tradeable object, where the first tradeable object and the second tradeable object are available to trade at the one or more electronic exchanges, where the first inside market includes a best ask in a market for the first tradeable object and a best bid in the market for the first tradeable object, and the second inside market includes a best ask in a market for the second tradeable object and a best bid in the market for the second tradeable object; an electronic processor coupled with the market information receiver and configured to receive a user-configuration for a spread trading strategy between the first tradeable object and the second tradeable object and a desired spread price for the spread trading strategy, where the electronic processor determines parameters for an order for the first tradeable object to automatically send the order for the first tradeable object according to conditions in a market for the second tradeable object, the user-configuration for the spread trading strategy and the desired spread price, where in response to determining based on the market information that the first inside market includes a market gap including a plurality of price levels without an available bid quantity and without an available ask quantity between the best ask in the market for the first tradeable object and the best bid in the market for the first tradeable object, the electronic processor determines a leaned-on price at a selected price level of the plurality of price levels within the market gap, where the selected price level of the leaned-on price within the market gap is determined based on a level of quoting aggressiveness, and where the selected price level comprises at least one price level above the best bid in the market for the first tradeable object according to the spread trading strategy being a buy and at least one price level below the best ask in the market for the first tradeable object according to the spread trading strategy being a sell, and where the electronic processor calculates a quote order price for a quote order for the second tradeable object of the spread trading strategy based on the leaned-on price and the desired spread price; and an order router coupled with the electronic processor and configured to automatically submit the quote order at the calculated quote order price to the one or more electronic exchanges for the second tradeable object.
 2. The computing device of claim 1 where the leaned-on price comprises one price level below the best ask in the market for the first tradeable object according to the spread trading strategy being a buy and one price level above the best bid in the market for the first tradeable object according to the spread trading strategy being a sell.
 3. The computing device of claim 1 where the leaned-on price comprises two price levels above the best bid in the market for the first tradeable object according to the spread trading strategy being a buy and two price levels below the best ask in the market for the first tradeable object according to the spread trading strategy being a sell.
 4. The computing device of claim 1 where the level of quoting aggressiveness comprises a user-selected level of quoting aggressiveness.
 5. The computing device of claim 4 where the level of quoting aggressiveness is selected from a plurality of levels of aggressiveness.
 6. The computing device of claim 1, where the leaned-on price is adjusted based on the level of quoting aggressiveness and the market gap.
 7. The computing device of claim 6 where the leaned-on price is further adjusted in response to a market fluctuation in the first tradeable object.
 8. The computing device of claim 7, where the electronic processor re-prices the quote order according to the adjusted leaned-on price.
 9. The computing device of claim 1 where the electronic processor dynamically modifies the level of quoting aggressiveness according to at least any one of trading volume, market activity, a trader's historical trading activity, and current trading activity.
 10. The computing device of claim 1 where the quote order comprises a limit order.
 11. The computing device of claim 1, where the order router is further configured to submit an offsetting hedge order for the first tradeable object in response to execution of at least a portion of the quote order. 